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Leagal Contracts


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									                         CONTRACTS I (Jones)
I.    Introduction: (Contract : a promise or set of promises for the breach of which the
      law gives a remedy or the performance of which the law recognizes as a duty)
      1.     Bailey v. West
      2.     Hamer v. Sidway
      3.     Ricketts v. Scothorn
      4.     Williams v. Walker Thomas (1)
      5.     Williams v. Walker-Thomas (2)
      6.     Sullivan v. O’Connor

II.   Bases of Promissory Liability:
      A.     Bargain Contract (promise plus consideration)
         1. Bargain Requirement
             a.      Traditional Rule: Rest. §71- Consideration:
                 (1) to constitute consideration, a performance or return promise must
                 be bargained for
                 (2) bargained: if it is sought by the promisor in exchange for his
                 promise and is given by the promisee in exchange for that promise
                 (3) performance: a) an act other than promise; b) forbearance; c)
                 creation, formation, destruction of a legal relation
             b.      Trends:
                      if we agree that we should distinguish promises from bargains,
                         how can we tell if a bargain for exchange exists?

             c.       cases:
                  1. Kirksey v. Kirksey (Brother of deceased offers letter asking sister-
                  in-law to come to his farm and he will give her and her children a
                  place to live) DETRIMENTAL RELIANCE… absence of bargain
                 Did  use land to induce action?
                 Does promisor achieve any benefit by her being on his land?
                 Court focusses on mutuality of obligation…
                      If Mrs. Kirksey promised to come to his land and she didn’t, would
                      he be able to sue her for breach? NO…No mutuality of obligation.
                 Before detrimental reliance theory existed
                 Court trying to determine contract on a bargaining theory of
                  consideration: 1) Inducement 2) Mutuality of Obligation

                  2. Langer v. Superior Steel (Company president offers Langer
                  $100/mo retirement if he promises to stay loyal to the company and if
                  he doesn’t seek employment elsewhere) BARAGAINED FOR
                 Williston test: Benefit must flow from to the promisor from the
                  happening of the condition.
      Reformulation of benefit detriment model: If no concrete benefit to the
       promisor, then look at the detriment of the promisee
      Was consideration present at the time of the contract: 1) Inducement 2)
       Mutuality of obligation
      Tests of contracts are always sensitive to the facts surrounding the
      Relevant factors: detriment to the promisee, benefit to the promisor,
       mutuality of obligation, inducement, transaction here in furtherance of
       an actual exchange

       3. Bogigian v. Bogogian (Husband and ex-wife dispute over him
       convincing her to sign off her divorce settlement against him in order
       to sell mutually owned house) “GRAY ZONE CASE…” teaches us
       the danger of leaning too heavily on a subjective standard instead
       of objective standard.
      Objective Standard (bargained for exchange + consideration) vs.
       Subjective Standard (Her state of mind at the time of the contract)
      Look at factors in the case…judge’s call…

       4. Thomas v. Thomas HOW FAR TO PUSH
       CONSIDERATION…look to sufficiency? (husband on deathbe
       leaves house to wife. Brothers setup 1lb. + maintenance as
            court tries to rectify discrepancy between contract and promise
            contract is not based on bargained for exchange
            “nominal consideration” applies

       5. Factors of a contract: OFFER + ACCEPTANCE +
       Consideration = ?? (You’ll know it when you see it)
          Factors: mutuality of obligation, inducement, promisor benefit,
          promisee detriment.

                                                >>>>>> CONTRACT
                  Ex ante effects >>>>>
                  Policy concerns
                  Particular fairness

2. Sufficiency of Exchange
   a. General (Rest. §71 “requirements of exchange: a) baragained for b)
      performance or return promise is sought by promisor and given by
      promisee c) performance is an act, forbearance, creation/modification
      of a legal relation d) performance or return promise may be given to
the promisor or to some other person, and given by the promisee or
some other person.)

(1) Hamer v. Sidway (uncle gives nephew $5000 to quit drinking
    smoking and gambling)
     Must consideration extend/flow to the promisor? No.
     Must promisee be forced to give up something of value, or is it
       sufficient to refrain (forbear) from a legal right? Forbearance of
       legal right is sufficient consideration.
     Promisor needs not benefit from the promise
     No legal equivocacy of exchange
     Consideration as either benefit to the promisor or
       detriment to the promisee
     Gen. Rule: forbearance is adequate consideration Rest. § 71

(2) Apfel v. Prudential (investment banker w/ computer idea that
    company uses and then refuses to continue payment for)
     Court unwilling to look at adequacy or value
     Sufficiency of exchange…one party is claiming that they are
       paying too much for something from the other party
     General rule: Courts won’t generally look into the adequacy of
       the price bargained for….leave it up to the parties.
        CAVEAT>>> in extreme cases, courts look to price as

(3) Jones v. Star Credit (home salesman sells $300 refrigerator under
    plan for $1,234.80)
     UCC §2-302…unconscionable contracts.
     The equitable factor of exchange and says that the exchange is
        too conscionable.
     When court probes size of exchange it signals
     Reconciled with Apfel, supra:
         Equity/Level of baragining power
         Objective Value of determination
         Adequacy of exchange v. exchange (Sufficiency and
            adequacy of consideration). Adequacy is never considered
            until sufficiency is determined.
     Gen. Rule: court can look into adequacy (unconscionability)

(4) In re Greene (Mistress seeks $ from longterm affair with man)
          Court says no contract existed, even though parties intended to
           agree by a signed writing.
          No consideration existed and thus it was an unenforceable
          (1926) court looking to issue of adultery, not wanting to allow
           for that to exist.
          Sexual relationship was not enough to bind the contract
          Gen. Rule: traditional view of consideratin: valid forbearance

   (5) Fiege v. Bohem (Women sues for childbirth expenses for bastard
       child that  paid, and then stopped, and then found out the baby
       wasn’t his)
         agreed to pay and  forbeared from bringing bastardy suit
           against the .
        Court looks at if the parties believed there was a bona fide
           question between them then the forebearance of lawsuit was
           adequate consideration to uphold the promise.
        Subjective or Objective test?…
            Rest. §74 “Settlement of Claims”
                (1) (a)       Objective Tesst (Reasonable Belief)
                      (b)     Subjective Test (Bona Fide)
        General rule: To be valid, need not be is a function of
           good faith upon entering the agreement.

b. Pre-existing Duty
   Traditional rule: the performance or the promise to perform a pre-
   existing duty does not constitute consideration.
   (1) Levine v. Blumenthal ( leases retail store to  and sues to
       recover on original agreement despite subsequent oral agreements)
        Additional consideration is necessary when you amend a
           previous contract, in order to ensure an equitable deal
        To create a new leagal obligation, the second agreement must
           be supported by adequate consideration, separate from a pre-
           exisiting duty.

        Accord & satisfaction: method of discharging a claim whereby the
       parties agree to give & accept something in the settlement of the
       claim & perform the agreement; the “accord” being the agreement,
       the “satisfaction” its execution or performance, and it is a new
       contract subsituted for an old contract which is the thing
       Illusory Promise Rest. § 77…consideration is fuzzy b/c general
       policy is sensitive to context… (Case by case)

   (2) Alaska Packers v. Domenico (Fish fight…workers agree and then
       protest in the middle of nowhere seeking an new oral agreement)
        Court held that the new agreement wasn’t valid looking at the
           position of the business parties (Economic Factor)
        UCC §2-209… Modification of a contract needs no
           consideration to be binding…
        BUT>>> obligation of good faith not met by the parties:
            § 1-203- non-merchant
            § 2-103 – merchant
        Rest. § 89 (1)…promise modifying a duty not fully
           performed is binding if (a) fair & equitable (b) statute (c)
   (3) Angel v. Murray (Back pay sought for city refuse collector)
        Courts are reluctant to apply pre-existing duty rule to situations
           where obstacles arise and, not under duress, the parties agree to
           an increase in pay
        When obstacle is unanticipated, and the parties act voluntarily
           in good faith, the increase or modification may become binding
           under Rest. §89 and UCC §2-209 (1).

c. Mutuality of Obligation (Are both parties obligated to act upon the
   agreement? Can one party w/draw at anytime w/o penalty?”

   Arises out of illusory promises (e.g: “In exchange for $1000 today, I
   will cut your lawn when I feel like it.”)

   (1) Rehm-Zeiher v. F.G. Walker (Sell of whiskey…unforseen reason)
        The “any unforseen reason” clause in the contract allowed one
          party to remove itself at anytime
        Gen. Rule: There was no contract b/c there was no mutuality of

   (2) McMichael v Price (sellers of sand)
        “all the sand he could sell” was binding and mutual enough to
         enforce contract.
        UCC §2-306 …good faith & proportion of estimate
         (exclusive dealings)
        Gen. Rule: Output contract: I’m taking all you can produce
        UCC will fill in the gaps 2-306 is the great equalizer

   (3) Wood v. Lucy (fashion ideas)
        Court finds implied duties in the language of the agreement
                 Determines intention of the agreeing parties in finding that
                  both were obligated to perform
                 Gen. Rule: Court may imply duty even where there is no
                  express duty

           (4) Omni v. Seatlle First (sale of land)
                Court is concerned with the “subject to satisfaction of the
                 purchaser” clause
                Court concludes that the parties entered into the agreement
                 based on good faith, and that both parties were obligated to
                 perform….thus…CONTRACT ENFORCEABLE!!!
                UCC §2-204 Fornation of contract

B.   Moral Obligation (promise plus antecedent benefit)
     •     “Past consideration is no consideration”…distinguishing based on
           the material benefits.

     •        Some comm. law approaches:
              (1)   Moral Obligation = need consideration
              (2)   Promise w/ Moral Obligation = need NO consideration

     •        Limitations: Separate transactions from gifts

     •       Gen. Rule: Past consideration is no consideration…CAVEAT>>>
     flexibility allowed by Rest. § 86… Promise for benefit
     received…enforceable to the extent necessary to prevent injustice.

     (1)      Mills v. Wyman (nursing of sick son, promise by father to repay)
               Definite moral obligation to repay the woman for the care of
                 his dying son…BUT..
               Court says that the father did not benefit directly, and therefore
                 there was no consideration…no contract

     (2)      Manwill v. Oyler (selling/giving of a farm and seeking to enforce a
              promise to repay him for that)
               Gen. Rule: Mere moral obligation is not enough!
                failed to establish the existence of a prior oral agreement to
                 repay… NO CONTRACT!!!

     (3)      Webb v. McGowin (Pine block martyr)
               Saving of a life constitutes a material benefit equalling
               Gen. Rule: Material benefit plus moral obligation equals
                binding contracts
     (4)    Harrington v. Taylor ( mutilated her hand in an attempt to
            prevent harm)
             No consideration existed for which the  is obligated to pay
             Is not being killed now NOT consideration???

C.   Promissory Estoppel (detrimental reliance)
     Rest. § 90…Induced reliance or forebearance which was reasonably

     Cal. test: (1) party to be estopped must be apprised of the facts; (2) he
     must intend his conduct shall be acted upon, or act so that the party
     reasonably believes he intended to do so; (3) other party must be ignorant
     of the true facts; and (4) he must rely on the conduct to his injury.

     (1) Alegheny Coolege v. Nat’l Chautauqua (giving of gift to college w/
         stipulation of setting up of the Memorial Fund)
          Court notes difference between any detriment (mere consequence)
             and the legal detriment (motive) e.g: feeding the beagle is a mere
             consequence detriment of gift.
          Promissory estoppel can be a substitute for consideration OR an
             exception…Today: we think of it in terms of an exception.
          Test of detriment intended is whether the happening of the
             condition will benefit the promisor.
          The promissory estoppel was reliance in creating the fund, setting
             up the memorial. She benefitted by the recognition of her name
             after death.
          Rest. §90 (2)…a charitable subscription or a marriage
             settlement is binding w/o proof that the promise induced action
             or forbearance.

     (2) Feinberg v. Pfieffer Co. (Long-time worker for company receives
         pension and then has it removed)
          Does reliance begin at the time of the promise or when she retires?
          Why not moral obligation…parties otherwise couldn’t bargain!
            It’s weaker moral obligation than when you save someone’s life!
          Legal detriments don’t have to be bad…
          Rest. §90…act or forbearance induced + injustice = estopped

     (3) Grouse v. Group Health Plan (Promise to employ pharmicist is
         revoked when they don’t receive any references)
          What was Grouse obligated to do?…was there a bilateral power of
          Who was obligated to do what for how long? Court holds that no
            contract existed b/c there was no mutuality of obligation in the
            power to terminate employment
                      Should the damages be awarded based on his expectations of
                       working for the company, or his detriment for giving up his job?
                      Rest. §90…provides a remedy…not necessarily performance.

              (4) Cohen v. Cowles Media Co. (Gov. info given to the media
                  confidentially and then broken by newspaper)
                   He wins on theory of promissory estoppel…why not contracts?
                     (promise + performance)???
                   Is it possible to have a bargained for promise plus performance w/o
                   2 reasons to avoid injustice:
                      longstanding traditional reason to uphold reporter
                      no compelling reason to break the promise

       D.     Formalities in Contract: Statute of Frauds (Promise + formalities???)
              1.    Promise plus seal
                     Rest. § 95…in absence of a statute a promise is binding if (1)
                         in writing and sealed….(some preservation of seal in today)
                     UCC §2-203…no such thing as a seal.
                     Some remnants in 2-205, 2-209

              2.       Statute of Frauds
                       UCC §2-201:
                        “Sale of Goods for $500 or more = sufficient writing
                        between merchants…written confirmation is sufficient unless
                           objected to w/in ten days
                        other ways for contract to be valid if it wouldn’t be
                           otherwise…(1) specifically manufactured (2) quantity only is
                           disputed (3) respect to goods which payment has been made.
                        The One-Year Clause…agreements performed within the
                           space of one year from the making thereof also has to be in
                        POLICY: Congress is trying to prevent fraud or perjury…
                            $ amount placed to prevent temptation
                            1 yr. Clause goes to freshness of the evidence

III.   The Bargain Relationship (Agreement and Performance…requisites of creation of

       When is it too late for 1 party to w/draw w/o liability? Tackling the “EDDIE”

       UCC §§ 2- 204, 205, 206, 207, 208} ACCEPTANCE!
A.   The Agreement Process: Manifestation of Mutual Assent
     1.    Ascertainment of Assent: The Objective Test

            Traditional Test/Rule: Reasonable man relying on the expressed
            intention as assent. (True meeting of the minds is not required)

            (1) Embry v. Hargadine (employment contract vague by oral
                 Court looks to expressed intention
                 Would a reasonable man construe the language as to rely
                    on it as assent?
                 Traditional approach

            (2) Lucy v. Zehmer (Drinking buddies make a contract (joke) to
                sell land)
                 Mental assent not a requisite…you don’t actually have to
                    intend to assent. (Difference between legal and factual
                 Court looks to outward expression, not inward intention
                 Words and acts judged by a reasonable standard.
                    (Traditional approach)
                 How many facts could you remove and this still be

            (3) Cohen v. Cowles (Newspaper confidentiality)
                 Court concludes there was offer, acceptance AND
                   consideration…..Why no Contract????
                 “Court says that there can be no contract where the parties
                   intended none…they weren’t thinking in terms of offers
                   and acceptances in any commercial or business sense.”

     2.     Offer: Creation of Power of Acceptance

     Gen. Rule: OFFEROR IS MASTER OF THE OFFER…and is under
     no obligation to make the offer reasonable, and can choose and specify
     mode of acceptance.

            (1) Lonergan v. Scolnick (Ad placed to buy prop. and the
                subsequent letter exchange between the parties,  sold prop. to
                a 3rd party)
                 Court finds no contract
                 Intial ad was an invitation to offer
           Letter offering to sell w/in a week was an offer on a first
            come-first served basis, and was well w/in ’s right as
            master of the offer
           Rest. § 26…preliminary negotioations: a manifestation
            of willingness to enter into an agreement

     (2) Lefkowitz v. Great Mineapolis Surplus Store (ad to sell
         discounted minks)
          Offeror must make plain to offerees explicitly that a
             reasonable person would know
          Offeror may w/draw offer at anytime before acceptance
          Ads are presumptively an invitation for offers
              Test is explicit, definite, clear…ad is not an offer until
                 it crosses this line
          1st ad was too vague and ambiguous…NO offer!
          2nd ad was definite and explicit…Valid Offer
          ex ante effects…ad’s will become more vague & weasally

     (3) Southworth v. Oliver (neighbor selling land and grazing
         permits offers to both neighbors)
          Numerosity of offerees…does not have to be limited to 1
            person, just a definite group! (the probability decreases that
            it is an offer the more people you have)
          Reasonable person test (Objective test)…reliance that it
            was an offer
          Price quotation is evidence of a fixed intent
          Contracts are subject to circumstances surrounding the
          Presumption goes in the direction of not an offer
          Look to relevant factors…business history, prior dealings,
            business norms, etc… (Reasonable Person Test)

3.   Acceptance: Exercise of Power of Acceptance
      (Master of the offer is offeror and may require specific terms for
     acceptance Rest. § 50, and may revoke his offer prior to
     acceptance §36) UNILATERAL & BILATERAL OFFERS

     Method and Communication of Acceptance
     a.    La Salle National Bank v. Vega (Bank sell only valid by
           execution of a trust)
           Rest. § 50 (1)… Acceptance of an offer is a
           manifestation of assent to the terms thereof made by the
           offeree in a manner invited or required by the offer.
       solicitation, invitation, counter-offer, acceptance…Mel’s
       offer was conditional

b.    Hendricks v. Behee (Selling of tries to back out)
(Uncommunicated acceptance is not valid)
       Uncommunicated intent to accept is not acceptance.
       Revocation of an offer must be communicated to the
         offeree or their agent before notice of acceptance is
         given. UCC §2-205 applies to merchant
         offers…open ended offers must be held open
       Comm. of acceptance to one’s own agent is not
         sufficient for acceptance

c.     Ever-tite Roofing v. Green (Offeror can’t revoke once
       partial performance has begun)
       --- Revocation of a unilateral offer can’t be done once
       partial performance has begun ---

       Rest. §36 (An offeree’s power of acceptance may be
       terminated by (b) lapse of time. §56 (…promise to
       perform as acceptance must be reasonably notified to
       offeror or offeror must seasonably receive the

d.     Corinthian Pharmaceuticals v. Lederle Labs (vials at lower
       price..non-conforming accomodation)
       ---UCC §2-206… Non-conforming goods!---
       (good example of what an offer is)
        A price quote is not an offer to buyer
        An offer can be made by a phone
        Receiving a confirmation by a automated machine does
           not constitute acceptance (in this case, price effecive
           was that of the shipping date)
        Shipment of non-conforming goods by means of an
           accomodation does not constitute acceptance if the
           seller seasonably (def. §1-204) notifies the buyer that
           the shipment is offered only as an accomodation
           (UCC§ 2-206)
       (Lederle sent a shipment of non-conforming goods meant
       to be an accomodation, and therefore does not constitute

e.     Carlill v. Carbolic Smoke
        Classic unilateral contract Rest. § 54 (1)
        No notice of performance is required unless the offer
          requests such notification
        An advertised reward to anyone who performs certain
         conditions specified in the ad is an offer, and the
         performance of such conditions is an acceptance, with
         certain conditions
        Reasonably people would have been led to perform
         (Rest. §90) (Promissory Estppel…not mentioned in
         the case)
        Ad offer must pass Lefkowitz test for offers

f.   Glover v. Jewish Veterans (Reward case)
      A person can not accept an offer if they learn of it only
        after they’ve fully performed (No contract of the
        meeting of the minds…) UNLESS, offeree becomes
        aware of offer after only partial performance Res. §51
      Rest. § 86... Promise + Antecedent Benefit?..she
        wasn’t put in a detriment
      Exception: Govt. or local entity…
      Ex ante effect???? Policy…do we really want people to
        wait until they’ve researched for an award to help?

g.   Industrial America v. Fulton (broker case w/ two merging
      Power of acceptance isn’t terminated until offeror
        notofies offeree of revocation (Rest. §36)
      Completed performance with knowledge of offer is
        enforceable regardless of motivation to perform.
        Rest.§ 51 (part performance) §62 (reasonable
        commencing time)

h.   Adams v. Lindsey (Mailbox Rule)
      Rest. § 63 (a)… acceptance valid upon sending
         CAVEAT… only applies to acceptance.
      Rest. § 40… counter-offers, rejection and revocation
         only valid upon receipt
     [Hypo: If offeree sends acceptance in the mail and then
     attempts to reject afterwards by phone…the Offeror has the
     choice to enforce the contract or not.]

i.   Russell v. Texas (staying on the land constituted
     Rest. § 69 (acceptance by silence)
      Offeree takes benefit
      Offeree has reason to believe that silence will constitue
      Previous dealings lead to reasonablility
j.     Ammons v. Wilson (agent tweety could not bind the
        Give it to a jury
        Rest. §69… (previous dealings)

k.     Smith-Scharff Paper v. P.N. Hirsch (Paper bags case w/
       company logo)
        Court finds an implied contract b/c:
           UCC §2-201 (3) (1) (a)… specially made and
             unique to buyer
           UCC §1-205…usage of trade and course of
             dealings in a sequence
            benefited from ’s actions and reaped the benefit

l.     Harris v. Time (Free watch case)
        Court finds that ad was an offer b/c it solicitated
          specific performance
        Court chooses not to enforce b/c of policy reasons
        What about notification of acceptance? How would
          you notify?
        “Transaction in goods”…§2-102; Sale of goods =
          transfer of title for price..Is this a sale of goods?

Nature and Effect of Counter Offer

Traditional Comm. Law: MIRROR IMAGE RULE
Acceptance must mirror the offer for the contract to be valid

Modern Rule: UCC §2-207 (see flow chart) UCC moves away
from “battle to be last”…it is an attempt to protect the buyer from
sellers who ship the agreement with the goods.

a.     Minneapolis v. Columbus Milling (telephone order for rails
        There was an invitation to offer, and offer, and then a
        Traditional rule: if acceptance doesn’t mirror the offer,
           then it is a counter-offer and revokes the power to
           accept the original offer
        Rest.§38…counter-offer is rejection, unless offeree
           takes offer under advisement, or offeror stipulates
           an exception of counter-offer.

b.     Pevar v. Evans (plywood case…battle of the forms)
        UCC §2-201…
                      UCC §2-207
                      Court determines that there was a contract based on the
                       evidence of an oral agreement (the written forms would
                       provide evidence of what was agreed to by the oral

     4.     Termination of Offer: Destruction of Power of Acceptance

            General Rule: Offeror may revoke at anytime before
            acceptance is given….CAVEAT: Subject to option contracts!

            Rest. §36…Termination of Power of Acceptance may be
            terminated by (a) rejection or counter-offer by the offeree, or
            (b) lapse of time (c) revocation by the offeror, (d) death or
            incapacity of the offeror or offeree OR the non-occurrence of
            any condition of acceptance. (Or intervening illegality)

            A.     Hendricks v. Behee (real estate agent communication of
                    Uncommunicated intention of acceptance is not
                    Illustration of the general rule that offeror can revoke at
                      anytime before manifestation of intent to accept.

            B.     Dickinson v. Dodds (open offer to sell house…race to
                    Power of acceptance is terminated when offeree
                      discovers by reliable means, offeror’s intention to
                      revoke…Rest. §36

     5.     Irrevocable Offer: Nondestructible Power of Acceptance

B.   Inusfficient or Defective Formulation of Agreement

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